IN INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: F NEW DELHI BEFORE SH. H.S. SIDHU, JUDICIAL MEMBER AND SH. O.P. KANT, ACCOUNTANT MEMBER ITA No. 2470/Del/2014 Assessment Year: 2005-06 M/s. Positive Move India Vs. DCIT, Circle-14(1), New Delhi Consulting Pvt. Ltd., 105A, Indraprakash Building, 21, Barakhamba Road, New Delhi PAN : AAACL0399Q (Appellant) (Respondent) Appellant by Sh. P.J. Khanna, CA Respondent by Sh. F.R. Meena, Sr.DR Date of hearing 11.08.2016 Date of pronouncement 06.10.2016 ORDER PER O.P. KANT, A.M.: This appeal by assessee is directed against order dated 30/01/2014 passed by learned Commissioner of Income-tax (Appeals)-XVII, Delhi, for assessment year 2005-06 raising solitary ground as under: On facts and in circumstances of case appellate authority has erred in confirming disallowance Rs.1,06,64,354/- out of head commission and Rs.2,66,609/- on account of incidental expenses incurred thereto. 2. facts in brief of case are that assessee filed return of income declaring income of Rs.42,03,050/-. Subsequent to filing of return of income, information was received by Assessing Officer 2 ITA No. 2470/Del/2014 AY: 2005-06 from Directorate of Income Tax (Investigation) that in search/survey operations in case of Sh. Aseem Kumar Gupta, it was revealed that assessee was beneficiary of accommodation entry provided by Sh. Aseem Kumar Gupta through companies floated by him, which were only paper companies and not doing any real business. It was observed that Sh. Aseem Kumar Gupta was doing business of providing accommodation entries through concern/companies in lieu of certain commission for providing those accommodation entries, which usually varied from 1.5% to 3%. On perusal of these documents, Assessing Officer found that assessee company which was earlier known as M/s. Leading Edge Marketers Private Limited, had claimed to have paid amount of Rs.9,31,380/- to M/s. Suma Finance and Investment Pvt. Ltd. (SF & IPL) and amounts of Rs.21,51,425/-, Rs.16,98,232/-, Rs.13,11,189 and Rs.20,46,745/- to M/s. Moderate Credit Corporation Limited (MCCL) on account of commission charges. On examination of report/documents, Assessing Officer found that prima facie entire transaction lack ingredient of genuineness and, therefore, he had reason to believe that income had escaped assessment by reason of failure on part of assessee to disclose fully and truly all material facts necessary for his assessment for year under consideration. 2.1 Accordingly, Assessing Officer reopened assessment invoking provision of Section 147 of Income Tax Act, 1961 (in short Act ) and issued notice under section 148 of Act which was served on assessee company on 29/03/2012. assessee company filed return of income on 20/11/2012. notice under section 143(2) of Act was issued and re-assessment proceedings were commenced. 2.2 During assessment proceeding, it was observed that M/s. SF & IPL later renamed as M/s. MCCL. Assessing Officer issued summon 3 ITA No. 2470/Del/2014 AY: 2005-06 under section 131 of Act on 11/02/2013 to M/s. Moderate Credit Corporation limited (MCCL) to whom entire commission payment of Rs.1,06,64,354/- was made by assessee. MCCL was asked to present before Assessing Officer on 18/02/2013. assessee company was also requested to present on said date for furnishing evidence with respect to receipt of services and genuineness of expenses debited in books of accounts. On specified date, neither representative of assessee nor anyone on behalf of MCCL attended. Further, on addresses of MCCL provided by assessee company, no one could be found and contacted. Assessing Officer observed that in other cases including case of M/s. Param Dairy Ltd., for assessment year 2007-08, M/s. MCCL was found to be engaged in providing accommodation entries/transactions and share capital and genuineness of identity of M/s. MCCL was not established. Assessing Officer further observed as under: i. No details of services rendered by M/s. Moderate Credit Corporation Limited (MCCL) were provided by assessee company. ii. Nothing was brought on record to justify credit of commission to M/s. Moderate Credit Corporation Limited (MCCL) i.e. nature of services provided or business procured by it for assessee company. iii. No details of payments made on account of outstanding payments were placed on records in subsequent period. iv. No representative of assessee company attended in compliance to summons to substantiate claim of expenses. 2.3 In view of above facts observed, Assessing Officer held that amount of Rs.1,06,64,354/- debited as commission in books of accounts of assessee company was bogus expense, which was not 4 ITA No. 2470/Del/2014 AY: 2005-06 supported by any evidence and thus he disallowed same. He further held that in view of commission entry obtained, assessee company paid charges at rate of 2.5% of amount for getting entry of amount of Rs.1,06,64,354/-, which was worked out to Rs.2,66,609/-. Assessing Officer added this amount also as undisclosed income of assessee. 2.4 Before learned Commissioner of Income-tax (Appeals), assessee claimed that it was engaged in business of manpower management which included recruitment training etc. for its client since 1991 and in year under consideration assessee company outsourced part of its business segment to M/s. MCCL to provide specialized technical services with view to enhance and expand its existing business. copy of letter of appointment issued by assessee company was submitted before learned Commissioner of Income-tax (Appeals). assessee submitted that due to outsourcing to M/s. MCCL turnover of assessee company increased from Rs.239.76 lacs in preceding year to Rs.333.76 lacs during year under consideration. According to assessee, contract business handled by M/s. MCCL aggregated to Rs.1,99,25,226/- with following clients: S. No. Name of client Invoices raised(Rs.) 1. Tata AIG Life Insurance Co. Ltd. 57,83,319/- 2. Tata AIG General Insurance Co. Ltd. 34,22,459/- 3. Hindustan Lever Ltd. 65,32,356/- 4. Howden Insuracne 3,00,756/- 5. Emerson Electric Co. 10,68,449/- 6. Pepsi Foods Pvt. Ltd. 12,81,472/- 7. Western Union Financial Services 15,36,415/- Total 1,99,25,226/- 2.5 assessee further submitted that M/s. MCCL attended technical services in field of manpower recruitment to clients of 5 ITA No. 2470/Del/2014 AY: 2005-06 assessee company. It was further submitted that M/s. MCCL was registered under Companies Act, Income Tax Department and Service Tax Authorities and it was regularly filing service tax and income tax returns and proper TDS was deducted on payment made to assessee company at prescribed rate. It was further submitted that amount payable as on 31/03/2005 was duly paid in subsequent year. 2.6 It was argued before learned Commissioner of Income Tax (Appeals) on behalf of assessee that assessee had fully discharged onus of providing genuineness of expenditure by placing sufficient material on record and proving identity of payee. Further, it was submitted that recipient has been taxed on payment of commission and, therefore, disallowance of commission would lead to same income being taxed twice. 2.7 learned Commissioner of Income-tax (Appeals) forwarded submission of assessee to Assessing Officer for his comment, calling for remand report. In remand report, Assessing Officer observed: (i) that part of bills submitted by M/s SF & ICL and M/s MCCL were not on letterhead of those companies. (ii) that copy of bills issued by those companies to assessee company were also seized by investigation wing in course of search proceeding and seized copy of bills were undated, whereas copy of bills submitted by assessee before Assessing Officer were bearing dates i.e. seller copy and customer copy of same bill are different (iii) that seized copy of Bill was containing condition that payment must be as per term of agreement , but no copy of such agreement between assessee and M/s MCCL was 6 ITA No. 2470/Del/2014 AY: 2005-06 filed by assessee and assessee filed only letter of appointment of M/s MCCL as business associate. (iv) that no correspondence of discussion with either with M/s. SF & ICL or M/s MCCL regarding services rendered was filed by assessee. (v) that service tax was not charged in bills of first and second quarters of financial year concerned. (vi) that payment of alleged commission was not paid during year under consideration and it was paid in subsequent year. (vii) that no documentary evidence in form of correspondence in respect of technical services rendered by M/s SF & IL or M/s MCCL was produced before Assessing Officer (viii) that assessee company did not produce any documentary evidence of deduction of tax at source by assessee and payment of service tax to M/s MCCL (ix) that assessee did not file any evidence in respect of alleged commission of which Rs.97,62,613/-assessed in hand of recipient. (x) that assessee company filed only permanent account number (PAN) of party and no details of Income-tax return etc. had been filed in respect of party to whom alleged commission was paid. 2.8 copy of remand report was forwarded to assessee and assessee submitted reply on comments of Assessing Officer, which have been reproduced by learned Commissioner of Income-tax (Appeals) in impugned order. After considering comments of Assessing Officer and reply of assessee on 7 ITA No. 2470/Del/2014 AY: 2005-06 issue in dispute, learned Commissioner of Income-tax (Appeals) held as under: 6.6. After considering all aspects of case I shall now discuss addition of Rs.1,09,30,693/-. appellant had made commission payment of Rs.1,06,64,354/- to M/s. Moderate Credit Corporation Ltd. appellant stated that M/s. Moderate Credit Corporation Ltd. was providing technical services. However, appellant has not given copy of any agreement. appellant has not given what technical services were being provided by M/s. Moderate Credit Corporation Ltd. There is no detail on record as to how M/s. Moderate Credit Corporation Ltd. was qualified enough to render technical services. payment of Rs.1,06,64,354/- is being made, and there are no details of nature of services rendered and no written agreement specifying services to be rendered. Further, there was sufficient evidence with AO that M/s. Moderate Credit Corporation Ltd. was one of entities providing bogus accommodation entries. 6.7. Even in remand proceedings appellant did not produce any person from M/s. Moderate Credit Corporation Ltd. No books of account were produced, no documentary evidence was produced for nature of services rendered and business procured. No documents were shown to show that M/s. Moderate Credit Corporation Ltd. had shown amount of its income. No TDS certificates were furnished to show that TDS was deducted. AO has also given comments on bills Submitted by appellant. AO stated that bills are date bearing bills. However, bills seized by investigation using were undated. 6.8. In my view of above discussion, I am inclined to go as per reasoning of AO that commission payment to M/s. Moderate Credit Corporation Ltd. was not genuine and not incurred for purpose of business. addition of Rs.1,09,30,693/- is therefore confirmed. ground No. 2 of applied against appellant. 7. Ground No. 2 is also in respect of Rs.2,66,609/- on account of expenses incurred towards getting accommodation entry. Since I am holding that amount of commission paid was not genuine and merely expense entry obtained, I am agreeing 8 ITA No. 2470/Del/2014 AY: 2005-06 with contention of AO that some expenditure would have been incurred to obtain entry. addition of Rs.2,66,609/- is confirmed. ground of appeal is ruled against appellant. 3. Before us, learned Authorized Representative of assessee argued that payment of commission was genuine expenditure incurred by assessee. He further submitted: (i) that name of M/s Suma Finance and Investment Private Ltd (SF & IPL) which was incorporated on 24th March 1992 was changed to M/s Moderate Credit Corporation Limited (MCCL) w.e.f. 15/09/2004. (refer page 11 of assessee s paper book) (ii) that once summons were issued and served , then failure on behalf of party summoned could not be held against assessee. (iii) that books of accounts of assessee company were duly audited under companies Act as well as under Income-tax Act and relevant extract of accounts were duly produced before Assessing Officer. (iv) that nature of services were rendered in field of consistency as per appointment letter issued and tremendous rise in turnover of assessee company after engagement services of M/s MCCL and Department cannot decide how to run business of assessee and expenditure must be examined on ground of commercial expediency. (v) That payment of commission was made through account payee cheque. 9 ITA No. 2470/Del/2014 AY: 2005-06 4. In view of above submission, learned Authorized Representative of assessee prayed that disallowance of commission expenses and incidental expenses at rate of 2.5% on commission expenses, upheld by by learned Commissioner of Income-tax (Appeals) might be deleted. 5. On other hand, learned Senior Departmental Representative, relying on order of lower authorities submitted: (i) that neither any documentary evidence except permanent account number (PAN) in support of genuineness of M/s MCCL was filed by assessee before lower authorities nor said party was produced before authorities. No detail of directors of M/s MCCL and their whereabouts was provided by assessee. (ii) that said party was not found at addresses as provided by assessee. (iii) that no agreement between assessee and M/s MCCL regarding rendering of services and other terms and condition was filed before authorities. From copy of letter of appointment made available in assessee s paper book at page 4, it is seen that it is not signed by representative of M/s MCCL and therefore it is merely offer letter and there is no evidence that this offer was accepted by M/s MCCL. (iv) that no proof or documentary evidence in form of correspondence , in support of services rendered by M/s MCCL was filed by assessee. (v) that before Ld. Commissioner of Income-tax (Appeals) assessee claimed that M/s MCCL was engaged in handling contract business of parties namely M/s Tata 10 ITA No. 2470/Del/2014 AY: 2005-06 AIG life Insurance Company Limited, M/s Tata AIG General Insurance Company Limited, M/s Hindustan Lever Ltd, M/s Howden Insurance, M/s Emerson Electric Company, M/s Pepsi Foods Private Limited and Western Union financial services. But assessee has not submitted any documentary evidence in support of claim that M/s MCCL has executed contract work of those parties. (vi) that in search proceeding, Sh. Aseem Kumar Gupta admitted of fact of controlling affairs of companies including M/s. MCCL and issuing accommodation entry to assessee in lieu of commission without rendering any services. 6. In view of above submissions, learned Sr. Departmental Representative prayed that order of learned Commissioner of Income-tax (Appeals) might be upheld. 7. We have heard rival submissions and perused material on record including paper book filed by assessee. We find that main issue in dispute is whether M/s MCCL is genuine party and whether M/s MCCL has rendered services to assessee for justifying claim of commission expenses of assessee. 8. As regard to first issue in dispute we find that Assessing Officer issued summon under section 131 of Act both to assessee as well as M/s. MCCL but none attended before him. learned Authorized Representative contended that summon was served on M/s MCCL and failure to attend by M/s MCCL, assessee cannot be penalized. But we find that fact that summon was served on M/s MCCL, is not emanating from order of Assessing Officer. Assessing Officer has simply mentioned that 11 ITA No. 2470/Del/2014 AY: 2005-06 summon was issued to M/s. MCCL on 11/02/2013, but none attended on given time and date on behalf of M/s. MCCL. We find that Assessing Officer has mentioned that efforts were made to locate and contact principle officer/director of M/s. MCCL but no one could be contacted at addresses given by assessee. Assessing Officer has also mentioned that assessee submitted only permanent account number (PAN) of M/s MCCL and no other details. 8. In view of facts of M/s. MCCL being only paper entity controlled by Sh. Assem Kumar Gupta, it was responsibility of assessee to prove otherwise i.e. that M/s. MCCL was not paper company, by providing all details of directors or person s of companies with correspondence for engaging M/s. MCCL. assessee did not provide profile of M/s. MCCL and experience in executing work similar to work of assessee. assessee has not provided alternative addresses when Assessing Officer failed to locate said party at addresses provided by assessee. In these circumstances merely filing of PAN card or certificate of incorporation may not be sufficient to discharge onus of assessee. 9. second issue is whether M/s. MCCL has rendered any services to assessee. assessee has not filed any agreement between assessee and M/s MCCL. Evidently, copy of appointment letter issued by assessee company to M/s. Suma Finance and Investment Pvt. Ltd (subsequently changed name as M/s. MCCL ), is only offer letter and there is no evidence on record that this offer was accepted by M/s. Suma Finance and Investment Pvt. Ltd. Further, in remand report Assessing Officer has raised discrepancies in copies of bills issued in respect of alleged commission charges. Assessing Officer has mentioned copy of bills found in course of search were undated, whereas 12 ITA No. 2470/Del/2014 AY: 2005-06 customer copy produced by assessee is containing date of bills issued. This kind of inconsistency in two sets of bills i.e seller copy and customer copy raises doubt on genuineness of bills issued. Further, we find that no evidence either in form of correspondence between assessee company and M/s. MCCL regarding nature of services rendered has been filed before lower authorities or before us which could establish that M/s. MCCL has rendered any services to assessee. For claim of expenses as incurred wholly and exclusively for purpose of business, it was onus of assessee to produce credible evidences which could establish that party to whom assessee has paid commission has rendered services to assessee, and particularly when revenue had alleged that said party was engaged in providing accommodation entry without rendering any real services. In our opinion, producing extract copy of Ledger accounts of said party in books of account of assessee, which were audited under Income Tax Act or Companies Act, was not sufficient to establish that said party has rendered services to assessee. Making payment through cheque is also not evidence in itself that services were rendered by M/s. MCCL, particularly when we take into account statement of Sh. Aseem Kumar Gupta that M/s. MCCL was engaged in only accommodation entry, i.e., M/s MCCL has taken cheque from assessee and returned same in cash in lieu of certain incidental charges or commission. We do not agree with contention of learned Authorized Representative that it is not for Department how to run business of assessee. We find that Assessing Officer has asked for evidence in form of correspondence between parties and not directed as how to run business of assessee. 13 ITA No. 2470/Del/2014 AY: 2005-06 10. In view of above discussion, we are of opinion that order of learned Commissioner of Income-tax (Appeals) on issue in dispute is well reasoned and no interference on our part is required and accordingly we uphold same. solitary ground of appeal of assessee is dismissed. 11. In result, appeal of assessee is dismissed. decision is pronounced in open court on 6th October, 2016. Sd/- Sd/- (H.S. SIDHU) (O.P. KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 6th October, 2016. Laptop/- Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi M/s. Positive Move India Consulting Pvt. Ltd. v. DCIT, Circle-14(1), New Delhi